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BRAZIL
Pre-electoral jitters
LADB
7/22/2002
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Market fears increase with Lula’s rise in the polls.

Luiz Inácio Lula da Silva, the presidential candidate of the left-leaning Workers Party (PT), is running for Brazil’s highest post for the fourth consecutive time.

In previous elections, he led in the polls only to lose in runoff elections. This time, however, he is cultivating alliances with centrist parties that may improve his chances.

With just four months until Brazil elects a successor to two-term President Fernando Henrique Cardoso, it is not business owners who are threatening to leave, but foreign investors.

Lula’s recent rise in the polls has increased uncertainty among foreign investors because of doubts about his economic policy. This has strained the country’s economy, which is dependent on foreign capital inflows.

By toning down its radical discourse and making alliances with other parties, the PT has its best chance yet of winning the presidency in the Oct. 6 elections. But the government’s favored candidate, José Serra of the Brazilian Social Democracy Party (PSDB), is also hard at work building alliances.

After Roseana Sarney, the initial candidate of the Liberal Front Party (PFL) (LP, Jan. 28, 2002), dropped out of the race because of a business scandal, voters appeared to shift toward Lula. His rating jumped by 10 points to more than 40 percent in mid-May voter-preference polls. A July 9 survey by Ibope showed him still in the lead, but with 34 percent.

That increase, combined with sluggish economic growth and increasing worries about the government’s fiscal accounts, prompted foreign banks and risk-classification agencies to revise Brazilian investments downward.

Brazil’s risk — the premium paid by the government and domestic companies to contract foreign loans — jumped from a low of 700 points in March to more than 1,700 points in June. The dollar also rose from a low of 2.33 reales in April to more than 2.80 reales in early July.

"Investors remain concerned that the country’s terms on debt could be reorganized if a new administration steers the country in a leftist direction," said Keith Murray, a funds analyst for the Moody’s rating agency.

The investor jitters brought harsh reactions from politicians and even from local subsidiaries of multinational banks that downgraded the Brazilian debt. Lula called the banks’ action "economic terrorism."

Foreign analysts defended the move, however, saying they were just following the market.

"Long before foreign banks made their negative assessments, domestic markets were signaling a worsening of expectations," said Paulo Vieira da Cunha, a senior economist with Lehman Brothers.

To dispel investors’ fears, Finance Minister Pedro Malan called on the presidential candidates to lay out their plans for the economy and their commitment to reforms undertaken by Cardoso.

"The implementation of our program of government for Brazil ...will represent a break from the current economic model, founded on the opening and radical deregulation of the national economy and subordinating its dynamic to the interests and moods of globalized financial capital," according to an initial PT platform document released by Antônio Palocci Filho, who is coordinating Lula’s campaign.

Glauco Arbix, a sociologist with close ties to PT leaders, said that if the party won, it would not default on or renegotiate Brazil’s debt, would respect contracts made by the past administration and would maintain monetary stability. But by focusing more on job creation, it could compromise parts of the neoliberal recipe, such as the inflation targets adopted by the current government, he said.

In municipalities and states where it has governed, the PT has demonstrated prudent administrative practices and respected fiscal limitations. Even if the party wanted to make radical changes, it would need congressional approval.

Compared to previous elections, when it had the support of only a few leftist parties, this time the PT is seeking alliances with parties in the center, particularly the Liberal Party (PL) and the Brazilian Democratic Movement Party (PMDB).

"Brazil is a huge country," Arbix said. "You need to make alliances to govern."

For weeks, the PT was negotiating an alliance with the PL, which includes a number of evangelical leaders. Although the strategy was aimed at attracting the country’s business class, the PL has often voted with the PT in Congress. Cementing the alliance, on June 19, Lula picked the PL’s José Alencar, a multimillionaire businessman, to be his running mate.

A pact between the two parties had been slowed down by difficulties in establishing alliances in different states. Brazil’s electoral court recently ruled that party alliances at the state level must be the same as those at the federal level.

The PT has also been courting elements of the PMDB, which is currently part of the governing coalition. In early June, Lula offered the vice presidency to Pedro Simón, a disaffected PMDB senator, but he turned it down.

The PT continues to sow division within the PMDB by carrying on informal discussions with leaders close to former President Itamar Franco (1992-94), currently governor of Minas Gerais, and Orestes Quércia, the polemical former governor of São Paulo state.

On June 18, Franco announced that he would leave the PMDB, which he helped found, to support Lula. Quércia has also pledged to back Lula.

The PSDB has also been working to maintain its influence with the PMDB. Serra chose the PMDB’s Rita Camata as his running mate. A victory would make her Brazil’s first female vice president.

Before June, Ciro Gomes, who leads a coalition of the Popular Socialist Party (PPS), Democratic Workers Party (PDT) and Brazilian Workers Party (PTB), had not reached more than 10 percent in the polls. The Juy 9 survey by Ibope, however, showed him with 18 percent, virtually tied with Serra, who stood at 17 percent.

Most political observers predict that Lula will face either Serra or Gomes in a runoff. — LADB


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